Expansion drive takes Post Office into phones and loans

The Post Office is planning to launch a new residential phone service to rival BT in a bid to replicate the recent success of alternative operators such as Carphone Warehouse and Tesco. It is also pressing ahead with plans for new financial services products aimed at stealing market share from the big banks and building societies.

The Post Office is planning to launch a new residential phone service to rival BT in a bid to replicate the recent success of alternative operators such as Carphone Warehouse and Tesco. It is also pressing ahead with plans for new financial services products aimed at stealing market share from the big banks and building societies.

David Mills, the company's chief executive, will today announce details of a personal loan product launched as part of a joint venture with Bank of Ireland to be sold through the Post Office's 16,500 branches. According to Allan Leighton, the chairman of its parent company Royal Mail, financial services are crucial to the Post Office making a profit. He wants to repeat the success of Deutsche Postbank, which has sold financial services products for some years and recently announced profits of €500m (£334.5m).

However, the Post Office also sees BT's dominance in the residential fixed-line telephone market as ripe for competition and is planning an aggressive launch against its one-time sister company. Mr Mills said: "We want to be in the home phone market and for that you need the distribution network, a huge billing engine and a good call centre. We will need partners to get us in there.

"The Post Office is the best-known and trusted brand name on the high street. It has 98 per cent recognition. This is exactly what deregulation is all about but BT still has a huge percentage of the home phone market, and that is how long after deregulation was announced?"

The Post Office has a limited home phone service, which it runs run with Tele2. It offers pre-pay phone cards or discount calls available by dialling a four-digit prefix. The expansion into financial services will include credit cards, life assurance, car insurance and savings products. "Our 16,500 branch network is bigger than all the big banks and building societies put together. They have about 12,500," Mr Mills said. "We have 29 million customers coming into our branches 42 million times a week carrying out 52 million transactions. Our branches generate huge footfall."

The personal loan product being launched today will enable customers to borrow £1,000-£25,000 with an interest rate set depending solely on the amount borrowed rather than the credit rating of an applicant. On a £5,000 loan, for example, the Post Office will charge 8.9 per cent. It also promises immediate decisions on lending and payment holidays. It claims to be cheaper than Barclays, HSBC, Lloyds TSB and RBS. Bank of Irelend will underwrite the loans and use the Post Office as a distribution network. Mr Leighton said: "The financial services business will prove crucial to the Post Office making money rather than losing money."

In early trials, the Post Office has already arranged £4.5m of personal loans.